ABSTRACT
The
study is to determine the role of the impact of value added tax (VAT) on Nigeria
growth and development. The objective of
the same are in suitable the effective of VAT as a suitable alternative to
sales tax in Nigeria; to identify the methods of collecting value added tax and
to identify possible lapses and loopholes in VAT and its application in
Nigeria.
The
study employs primary and secondary sources of data. The primary source of data
was employed to elicit information from the respondent on the concept
considered. Based on this information source, survey analysis of inferential
methodology using chi-square analysis was adopted as a method of hypotheses
testing.
From
the analysis of the study, it was found out that value added tax contributes to
the growth of Nigerian economy, that value added tax is a good source of
revenue generation to the Nigerian economy and that there is proper and adequate
accounting records as far as VAT is concerned. The study suggested that monthly
and quarterly publication of VAT collections and disbursement in a least one or
two national dailies as this will serve as a watchdog and promote
accountability which will consequently prevent diversion of public funds. Also the computerization of all level and
department of tax must be highly favoured.
TABLE OF
CONTENTS
CHAPTER
INTRODUCTION
1.1
Background of the Study
1.2
Statement of the Problems
1.3
Objective of the Study
1.4
Research Questions
1.5
Statement of Hypothesis
1.6
Significance of the Study
1.7
Scope and Limitations of the Study
1.8
Definitions of terms
References
CHAPTER
TWO
LITERATURE
REVIEW
2.1 Theoretical
Framework
2.2 Historical
Background of Value Added Tax (VAT)
2.3 Theories
Relevant to the Study
2.4 Why
Nigerian Opt for Value Added Tax (VAT)
2.5 Value
Added Tax as a Placement to Sales Tax in Nigeria
2.6 VAT
Administration and Sharing Formular
2.7 Value
Added Tax Registration in Nigeria
2.8 Pricing
Systems in Value Added Tax (VAT)
2.9 Jurisdiction
Rules in VAT
2.10 Value
Added Tax Structure: A Critique
2.11 Strategy
on Value Added Tax (VAT)
2.12 The
Types of Value Added Tax (VAT)
2.13 Methods
of Calculating VAT
2.14 Supplies
under the Nigeria VAT’
2.15 Taxable
Person to Render Returns
2.16 Effect
Failure to Render Returns
2.17 Value
Added Period and Returns
2.18
Refund of VAT Taxable Persons and
Procedures
2.19 Value Added Tax Tribunal
2.20
Forms to be used for the VAT
Administration
2.21
Goods Covered by Value Added Tax
(Taxable Goods)
2.22
Services Covered by value Added Tax
(Taxable Service)
2.23
Goods and Services Exempt From VAT
2.24 Effect of Non Remittance of VAT
2.25
Offences and Penalties
2.26
Merits of Value Added Tax (VAT)
2.27
Demerits of Value Added Tax (VAT)
2.28
Problems of Value Add d Tax
2.29
Federal Inland Revenue Service (FIRS)
and Nigeria Custom
Services
(NCE) A Coordinated Action in VAT Collection
2.30
Nationwide Value Add Tax Census
2.31 Value Added Tax Technical Committee
2.32
Functions of the Technical Committee
2.33
Reviews among Literature
References
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Restatement of the Research Questions
3.3 Restatement of the Research Hypothesis
3.4 Research Designs
3.5 Data Collection Method
3.6 Data Collection Instrument
3.7 Population of Study
3.8 Sampling Design
3.9 Pilot Test Including Validity and
Reliability Test
3.10 Procedure for Processing and Analysis Data
3.11 Limitation of the Methodology
References
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION OF
RESULTS
4.0 Introduction
4.1 Presentation of Data
4.2 Results and Discussion
4.3 Testing of Hypotheses
CHAPTER FIVE
SUMMARY, RECOMMENDATION AND
CONCLUSION
5.1 Summary
5.2 Conclusion
5.3 Recommendation
Appendix
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
There
are three types of VAT; consumption income and gross product types, the
difference between them is only on how
purchases of new capital inputs (i.e. plant, furniture, equipment etc) are
treat d in the determination of the tax base for the purpose of this study,
emphasis wit be placed on consumption type.
With
consumption as the base of the value added tax, consumption can therefore be
defined as the purchase and utilization of goods and services for the
qualification of desires of an individual, business organization or any other
body which could either be private or public. The three major features of VAT
that must always be emphasized in its definition are:
i. That VAT is a consumption
tax (Federal Inland Revenue Service (1993) (FIRS, Information Circular)
ii.
That VAT incident is on the final
consumer and
iii.
That VAT is a multi stages tax.
In
view of the dwindling oil revenue accruing to the government, she in 1991 set
up a study group to review the e tire tax system.
As
one of the means of raising additional non oil revenue locally, the
introduction of the Value Added Tax was suggested to the Federal Government to
replace the existing sales tax which through a nationally levied tax, the
revenue there from is collected and retained by the state government.
In
1991, two study groups were set up by the Federal Government for tax reforms in
Nigeria. The first group (on the direct taxes) was set up by the Federal
Ministry of Finance and Economic Planning. The other group on the indirect taxation was
set up by the Federal Ministry of Budget and Planning, and was inaugurated on
April 25th, 1991, by the
then Honourable Minister of Budget and Planning, Alhaji Abubakar Alhaji.
The
recommendations of this group gave the general guidelines that informed the
abolishment of sales tax as operated under decree No. 7 of 1986.
In
this Budget speech in January 1 92, Retired General I. B. Babangiga, the then President
and Commander in Chief of the Armed Forces of the Federal Republic of
Nigeria,
announced that the government will set up the necessary machinery for the introduction
of Value Added Tax to replace the
existing sales tax in order to broaden the tax revenue base, shift taxation towards
consumption rather than saving, reduce dependence on oil revenue and encourage
investment in the non oil export sectors of the economy.
Non
oil sources have always contributed small amounts to revenue customs duties (taxes
on imported goods) which used to be an important source of revenue in the eighties
have dwindled significantly.
More
importantly, Individuals and Corporate Income Taxes have also declined as sources
of non oil revenue. For example Custom Duties provided about 20.6% of Federal
receipts in 1988 but decreased to 11.6% in 1992. Company income tax receipts
which accounted for 5.6% of federally collected revenue in 1988 fell to 3.9% in
1992.
Hence
if the Government must ha e additional revenue to meet growing public expenditure,
it can only come from tax, by increasing both individual and company taxes,
which under the present circumstances is neither feasible nor advisable. In
Nigeria only a small proportion of the
population (mostly civil servants) pay Income tax, so increasing it is not
likely to increase government revenue significantly. Furthermore, real income
has not increased for a very long time. The bulk of the self employed, traders,
farmers and businessmen evade tax and would only pay flat rate levels when
compelled. This gives personal income tax a narrow base that cannot easily be
elongated to yield higher revenue.
Company
tax cannot be Increase either, because of the need to encourage industries. In
the 1993 Budget, government reduced company tax rate from 40% to 35% as an
incentive to local and foreign investors and tax holidays were granted to some companies operating in rural areas.
Increasing corporate tax at this time will definitely have adverse effects on
productivity and national output.
There is therefore, need for a tax increase
a broad based consumption rather than
an income tax will be more suitable, as more people will be able to pay.
1.2 STATEMENT
OF PROBLEM
Taxes
from time immemorial, has been a powerful agent or instrument of revenue generation in Nigeria but when we look back
to the efficiency and effectiveness of the entire taxation system, we
could easily grasp that tax evasion and avoidance is rife, thus, here lies the
major problems that hinder the maximum collection of taxes from both
individuals and Corporate b dies alike. There are other problems which militate
against the effective implementation of the Value Added Tax system in Nigeria in general and on the banking sector
in particular.
Such problems include:
i. Shortage
of manpower and facilities of proper administration collection of
ii. There may be the problem of ascertaining which service s/ expenses of
the
bank
are VATable
iii. Communication
gap between the executors of VAT and the customers is wide
iv.
The raising and passing of counting entries relating to VAT at both the Head
Office and the branches (especially where inter branch VATable transactions
are
involved).
This
research will also seek to answer and
find solutions to the following problems:
a) If VAT can actually broaden t e tax
revenue base of the government.
b)
With VAT, has the burden f taxation
been shifted from savings towards
consumption?
c)
Is VAT self policing, giving it
inputs - output mechanism?
d) If
VAT on banking services I ad to a reduction in the volume of transactions
thereby reducing banks profit level.
e) Does
VAT have a single effect and does not add more than the specified rate to the
consumer price/ services charge no matter the number of stages at which tax is
paid.
1.3 OBJECTIVES OF THE STUDY
The
main objective of this research work is 'to examine the impact of value added tax
(V AT) on Nigerian economic growth and development.
Other
objectives of the study are as follows:
i.
To evaluate tax as a suitable alternative
to sales tax in Nigeria.
ii.
To identify the methods of collecting
Value Added Tax.
iii.
To evaluate efficiency of VAT
iv.
To identify possible lapses and
loopholes In VAT and its application in Nigeria.
v.
To ascertain the awareness and
compliance of VAT by Nigerians.
1.4 RESEARCH QUESTIONS
The
study will be divided into the following problems:
i.
Is VAT suitable alternative to sales
tax in Nigeria?
ii. How efficient is its administration by
the Federal Inland Revenue Service or
could
the situation be different if administered by other independent bodies.
iii. What are the methods for collecting VAT in
Nigeria?
iv. To
what degree does the tax satisfy or negate the principles of taxation?
v.
To what extent has VAT contributed
to growth and development of Nigeria?
1.5 STATEMENT OF HYPOTHESIS
HYPOTHESIS 1
Ho: Value Added Tax does not contribute to the
growth of Nigeria Economy.
Hi:
Value Added Tax contributes to the
growth of Nigeria Economy.
HYPOTHESIS II
Ho:
Value Added Tax is not a good source of
revenue generation to the Nigeria
economy
Hi: Value
Added Tax is a good source of revenue generation to the Nigeria economy.
HYPOTHESIS III
Ho:
There is no proper and adequate
accounting records as far as Vat is concerned.
Hi:
There is proper and adequate accounting
records as far as Vat is concerned.
1.6 SIGNIFICANCE OF THE STUDY
The
study will highlight the importance of Vat when properly administered. These are
in areas of increase in the level of revenue generation thereby promoting economic
growth and the attendant effect of improved standard of living of the populace.
An
understanding of this study will help to erase the erroneous impression in some
quarters that VAT is not or cannot be properly administered by the Federal Inland
Revenue Services. This study will also provide evidence of the increase in
revenue generation by VAT and how it is being shared amongst the three tiers of
government Federal, State and Local.
1.7 SCOPE AND LIMITATION OF THE
STUDY
This
research work shall be restricted to the revenue generated by VAT only through
the Federal Inland Revenue Services and the impact on the growth and stability
of the Nigeria economy. It will also be based on the activities of the Federal Inland
Revenue Services that administer VAT although the department of customs and
excise also collects VAT. It is at instance of the Federal Inland Revenue Services
to collect such tax at the nation's boarder and ports. However, efforts are made
to cover a wide ground such that the study can be good reference point for
anyone who wants to carry out research on value Added Tax. This study is to examine
the impacts of Value Added Tax on Nigeria Economy.
In
the process of carrying out this study, I envisage that full cooperation cannot
be received from the staffers of FIRS due to their tight work schedule. Also,
due to the broadness of VAT and the large landmass of the country, one cannot
claim to be able to exclusively affect a comprehensive analysis on VAT
administration. Also the following are the constraints likely to be encountered
in my effort to collect data for this project.
Indebt
analysis of document and procedures could be constrained by time. The key
officials in VAT offices could be reluctant to relieve give vital information
due to fear of victimization and financial constraints.
1.8 DEFINITION OF TERMS
i. ADMINISTRATION OF TAX: The tax shall be administered and managed by
Federal Board of Inland Revenue.
ii. REGISTERED PERSON: A person that is registered for VAT.
iii. RATE:
A VAT system can adopt one of the three rate models, single rate, double
rate and multiple rates; Nigeria has adopted the single rate system consisting
of 5% rate of tax for taxable.
iv. TAXABLE SERVICES: All services rendered
by financial institution, legal and advice information etc to their clients.
v. TAXABLE GOODS: All goods manufactured
in Nigeria and imported goods etc.
vi. TAX INVOICE: Any documents issued as an
evidence of demand for payment which is subjected to tax.
vii. TAX
AVOIDANCE: Is an attempt to escape tax liability by
circumventing the
law, not by breaking it. It is a smart act of
taxpayer who exploits loopholes in the tax law.
viii. TAX
EVASION: Is an attempt to escape tax liability (wholly or
partially) by breaking the tax law. It is criminal act.
ix.
VAT:
Value Added Tax is a consumption of goods and services and unless an item is especially exempted by law, the
consumer is liable to the tax.
x. VALUABLE PERSON: This is the person who
trade in vatable goods and service for a consideration.
xi. ZERO
RATING: Means that you are not only exempted from payment
of VAT on this class of sales but also allowed to get refund or credit for
taxes paid on their inputs.
xii.
FIRS: Federal
Inland Revenue Services
xiii. BIR: Board
of Inland Revenue
xiv.
GDP:
Gross Domestic Product
xv.
GNP:
Gross National Product
xvi.
NNP:
Net National Product.